Should you get rid of all debt for financial independence?

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Should you get rid of all debt for financial independence?

Is this what you want in financial independence?

Financial independence has definitely been on my mind a lot lately. I even started a blog (this one) dedicated to it! Financial independence doesn’t have the same definition to everyone.

Some consider it similar to early retirement, and you are not working. Some are on the opposite end and think it means that you can choose when and where you work and be more focused on enjoying life. One thing that may be different for some is financial independence when it comes to debt.

Debt doesn’t always mean the same thing for everyone. Some categorize debt as good or bad and place a lot of value on interest rates. Some think that all debt is bad and must be paid off. So does a person eliminate all debt before they declare that they are financially independent?

Are you considered financially independent if you are taking advantage of low-interest rates and would rather invest your money?

For me, I would prefer to have all debt gone. I know that many say you should keep low-interest rate loans since you can earn higher than that in the market.

However, I would rather have complete financial independence and have no debt, especially not a mortgage. I would want my monthly expenses to be as low as possible, but still enjoy life. That means no mortgage and no car payments or anything else large.

Positives of eliminating debt

  1. Lower monthly expenses. Your housing expense most likely won’t be completely eliminated since you will most likely have to pay property taxes still, but you will still be cutting your expenses by a lot.
  2. More room in your yearly budget to do what you want.  With debt, you might want to have more of a stable job, which might not equal financial independence for you any longer.
  3. Knowing that you paid it all with your current earnings can reduce the pressure to earn more to pay back debt. Also, you can get discounts when you pay in full. For example, according to cheapautoinsurance.net, you can avoid paying additional credit charges and save around five to 10 percent on your auto insurance when you pay in full.

Positives of keeping debt

  1. Might be able to earn more in the market and “make money” off your debt.
  2. Less net worth tied up in your home. If you truly needed to dip into your investments, then cash from housing may not be easily accessible.

Are you working on eliminating all debt?

 

Sources of Passive Income

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bbb low-cost housing, tegnestuen vandkunstenThe other day, I discussed passive income and what it is. Today’s post will be all about different sources of passive income.

I would love for you all to comment below and tell me what you do for passive income, or what you would like to do. I’m sure everyone is interested, and I definitely am!

Rental Income

Many people get into the rental market as a form of passive income. Depending on how you want to define passive income, rental income may or may not be included as a passive choice. However, for the sake of this post, we will say that rental income is passive.

Right now, we rent a room to my sister. It is definitely a form of passive income for us, as she has not been a bother at all. The money she pays us ($325 per month) has been easy so far.

We are still unsure if we will rent out our current home or sell it when we buy our next house. We are kind of leaning towards selling it. Someone brought up a good point in my post on MSOC in that if we were looking to buy a rental home, we probably wouldn’t buy this one since we could probably make more money from a renting out a cheaper house.

Royalties

If you’ve invented or created something in the past, you might be able to collect royalties from it. Maybe you invented something that everyone has to use, and you then collect royalties from it. Also, maybe you created an awesome song or took great pictures, and others wants to use them also.

Writing

Writing a book can be time-consuming in the beginning, but once you are done, the money could be considered passive income.

You could sell your books through online stores or have others sign up to be your affiliate and they can sell your books for you. I have been thinking about writing an ebook, but right now I am just too busy!

Dividends

Making money by investing in dividend paying stocks is a source of passive income. You can generate income whenever a company pays dividends. This does not only have to be from publicly-traded stocks. You can also invest in closely-held entities which distribute cash. This might be a family company that you don’t work in, or maybe a good investment that you just happened to come across.

In the field that I work in, many, many of my clients make millions a year (each) from closely-held entities that they are just partners in (in which they do absolutely nothing).

What do you do for passive income? Any plans for it in the future?

What is Passive Income

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What is Passive IncomePassive income is definitely something that interests me. Before I started blogging, I didn’t really give it much thought. I knew that it existed, but I just always believed that I would be the type of person to work a long time and have to actually put time into every dollar that I make.

Now that I plan on eventually making the leap to self-employment and becoming financially independent, passive income is something that I have been thinking about a lot.

Passive income would allow me to continue doing what I love in the future, just in case something does happen. For me, financial independence and passive income go hand in hand. It brings security and additional forms of income to our family.

We won’t have to be overly-reliant on one form of income.

So what is passive income? Different people have varying opinions on this. Some consider rental income to be passive income, whereas some do not because sometimes renting a home can be a TON of work, with income tax considerations and little pay/return sometimes. However, sometimes renting a home can be minimal work with a decent return. It all just depends on who you are talking to.

Formal definition of Passive Income:

“Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved. As with non-passive income, passive income is usually taxable; however it is often treated differently by the Internal Revenue Service.”

 

Some also consider blogging passive income, but I wouldn’t consider it passive at all! I’m not sure why some people think that… Just because someone has fun with something, does not mean that it is passive income.

For the most part, passive income is making money with little effort on a continual basis.

Something such as dividends would count, because there is only work in the beginning that needs to be done, and just a little maintenance afterwards. Dividends as a part of investment planning can be a great source of passive income.

What is not passive income? 

  1. Blogging. A lot of my time is dedicated towards blogging. I would not consider it minimal effort at all. In some cases, I can see where affiliate income can be considered passive though. If you just throw one post up and you can make thousands off of it, that is a pretty good return.
  2. Side jobs. Extra income does not automatically equal passive income.
  3. Doing what you love. Some consider that if you have fun at your job, then it is passive income. This really shocks me that some people think this!

 

Does passive income play a part in your life? Are you currently working on building it up?